Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / How Bull Markets Reward Moat Investing in 2026
Transcript
- Lucas: There's a term that gets thrown around a lot in investing that I think loses its meaning in a bull market — 'moat.' Everyone wants to own a company with a wide moat, but when the market is up almost 20 percent year-to-date, it's easy to confuse a company that has a real durable advantage with one that's just riding the wave. Luna: Right. And the S&P 500 closed yesterday at 7,499 — near all-time highs. So the temptation to assume everything with a good story has a moat is pretty strong. Lucas: Exactly. But I think this is the perfect environment to test the concept. Let's look at two names that have been absolute rockets this year: CrowdStrike and Datadog. CrowdStrike is up over 60 percent year-to-date, Datadog is up almost 80 percent. Both are in the cybersecurity and observability space respectively, both have strong recurring revenue models. But are they actually moat-worthy? Luna: CrowdStrike — ticker c r w d — is the one that closed at 763 yesterday. They've been a market darling. But I remember earlier this year there was that brief selloff when some analysts questioned whether their endpoint security leadership was under threat from Microsoft. Lucas: Yeah, that was around April. And CrowdStrike actually proved resilient — their quarterly results showed accelerating net new annual recurring revenue. That's a sign of a moat: when competitors try to encroach and you still grow faster. Datadog is similar — they dominate the observability space, but they face competition from New Relic and even cloud providers like AWS. Luna: So what separates a genuine moat from just a strong product cycle? I mean, these companies could just be benefiting from the AI tailwind that's lifting all tech stocks. Lucas: That's the key question. And the answer, I think, comes down to switching costs and ecosystem lock-in. CrowdStrike's Falcon platform isn't just a product — it's a data network. The more customers use it, the better the threat detection gets. That creates a data flywheel that a new entrant can't replicate overnight. Datadog has a similar effect: once a developer team builds its monitoring stack on Datadog, ripping it out is painful. Luna: So it's not just about having a good product today — it's about the cost of leaving. That's a classic moat criterion. But the market is also rewarding companies that might not have moats but are in the right narrative. Lucas: Which brings me to Michael Burry's latest short. As of yesterday, he disclosed he's shorting Caterpillar — the construction and mining equipment giant — for the first time. Caterpillar has nearly doubled in the ai driven rally of 2026. But what's its moat? Strong brand, sure, global dealer network — that's real. But is AI going to transform its business? Probably not in the way the stock price implies. Luna: So Burry is betting that the market has mistaken a cyclical company for a structural growth story. That's a classic moat fallacy — assuming a company that's benefiting from a macro tailwind has a durable competitive advantage. Lucas: Right. And this is where we need to be honest about the current macro backdrop. Real GDP growth came in at 2.1 percent annualised for the first quarter — up from 0.5 percent in the prior quarter. The Fed funds rate is at 3.63 percent, effectively flat. So the economy is solid but not booming. The bull market is being driven by a handful of sectors — AI, cybersecurity, cloud — not broad-based earnings growth. Luna: That context is crucial. When the macro environment is this supportive, it's easy to attribute all success to moats. But when the cycle turns — say, if inflation ticks up and the Fed has to hike again — the companies with real moats will hold up better. Lucas: Cleveland Fed President Hammack said exactly that yesterday — she warned that AI could fuel inflation and rate hikes might be necessary. That's a reminder that the current low-rate environment isn't guaranteed. And in a rising-rate environment, the market tends to punish high-multiple growth stocks that don't have defensible competitive positions. Luna: So how do you, as an investor, differentiate between a company with a widening moat and one that's just in the right place at the right time? What's a practical framework? Lucas: I look at three things. First, gross margin stability over time — if a company can maintain or expand gross margins while growing, that's a sign of pricing power. CrowdStrike's gross margins are around 78 percent and have been stable. Second, net revenue retention — for subscription businesses, a net retention rate above 120 percent means existing customers are spending more over time. Datadog reports north of 130 percent. Third, the competitive response — do competitors try to copy the product and fail? With CrowdStrike, Microsoft tried to bundle endpoint security with Windows and CrowdStrike still took share. Luna: Those are concrete signals. And I'd add one more: insider ownership and founder-led companies often have a longer-term orientation that protects the moat. Both CrowdStrike and Datadog have founders who are still deeply involved. Lucas: That's a good point. George Kurtz at CrowdStrike and Olivier Pomel at Datadog — they're not just CEOs, they're the product visionaries. That alignment matters when the market is screaming for short-term results. Luna: So if I'm a listener sitting on cash or looking to add to positions in this bull market, the takeaway isn't 'buy CrowdStrike' — it's 'use these moat metrics to filter your buy list.' Lucas: Exactly. And that's where I think our conversations really add value. If you've found yourself thinking differently about a stock or a strategy because of something we've said here, that's the whole point. And honestly, a couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Luna: Yeah, it's a small thing that makes a big difference for us. We don't run ads, so listener support is what keeps this independent. Lucas: Alright, back to moats. One company I've been watching that I think has an underappreciated moat is Cloudflare — ticker N-E-T. It's up almost 10 percent in the last five days alone. Their network effect is real: the more customers use their content delivery network, the more data they have to optimise routing and security. That's a classic two-sided network moat. Luna: And Cloudflare is also benefiting from the AI trend — they're providing edge computing for AI inference. But their moat isn't ai specific; it's the global network that's hard to replicate. So that fits the framework. Lucas: Right. Compare that to a company like Peloton, which had a narrative moat during the pandemic — 'we own the living room fitness market.' But it turned out the switching cost was negligible once gyms reopened. The moat was an illusion. Luna: So moat investing in this bull market requires a healthy dose of skepticism. Especially when the market is rewarding growth at any price. The Russell 2000 small-cap index closed yesterday at 3,024 — up 1.3 percent in five days — and small caps have had their best first half in 35 years. Some of those companies have real moats; many don't. Lucas: That's the danger. When the tide goes out, the companies without moats get exposed. And given that the Fed has signalled it might need to hike if ai driven inflation picks up, that tide could turn sooner than people expect. Luna: So the actionable takeaway: before you buy any stock trading at a high multiple, ask yourself — what is the switching cost for their customers? Is it increasing or decreasing? If you can't answer that, you're probably buying a story, not a moat. Lucas: And that distinction — between story and moat — is what separates investors who compound wealth over decades from those who give back their gains in the next downturn. I'd rather own CrowdStrike at 20 times revenue with a widening moat than Caterpillar at 2 times revenue with a cyclical business masquerading as an AI play. Luna: Well said. And we'll be watching Burry's short to see if that thesis plays out. Thanks for listening, and we'll see you next time on Bull Market Conversations.